A Claria analyst describes how to evaluate marketing success based on customer rather than action metrics.
You might know exactly how many people saw and clicked on one of your online ads last month, and how many of those people purchased something from you Web site, but how much do you really know about your consumers? Where are they coming from? Are they new to your product category? Are they switchers or are they loyalists? What is their buying cycle? Are they profitable?
It seems that in our spreadsheet-centric focus on clicks, conversions and inbound revenue, it’s easy to forget about many of the core principles of marketing including how to build a profitable consumer base. Consumers should be the focus of our analysis, and not actions alone.
The evolution of online success measurement
Online marketing campaign evaluation has experienced tremendous evolution. In the beginning, success was measured by the shear number of impressions -- the more eyes that reach your campaign, the better. Marketers quickly realized that impressions do not equate to successful marketing programs and thus devised a more tangible performance metric -- clicks. Click-through rates suddenly took over as the measurement standard for a great online campaign.
That was until marketers and advertisers realized that clicks don’t put money in the bank. Conversions do.
The next evolution of online success measurement came in evaluating conversions and conversion rates. Online campaigns were deemed successful by how compelling they were in terms of convincing an online consumer to click and purchase immediately.
Today, whether or not marketers want to admit it, the industry is experiencing yet another movement. This shift takes online marketing one step closer to traditional brick-and-mortar models by forcing marketers to look not just at their conversions or current consumer base but rather asks marketers and advertisers to look at the profitability of their consumer base.
Behavioral marketing is helping to build profitable consumers
We need to shift our understanding to focus on what a consumer’s typical buying cycle looks like, where they come from and how loyalty factors into their buying patterns. It’s no longer just about direct response. It’s about building a long-term, profitable consumer base. Understanding and catering to consumer buying cycles is the backbone of consumer-centric success measurement, and is no different than what offline marketers have been doing for decades in an effort to build loyalty and market share. There is a difference, however, in how behavioral marketing gauges potential profitability of consumers. By monitoring consumer behavior across the entire Web, behavioral marketing allows advertisers to understand the entire buying cycles of each of their consumers and display relevant, targeted messages based on that behavior. Advertisers can customize their messages to attract, build or sustain their current consumers.
Consumer loyalty and lifetime value
One of the biggest consumer-centric metrics that directly impacts ROI is consumer loyalty. Certain types of consumers can actually cost you more to acquire than they are ultimately worth. For instance, many consumer packaged goods companies actively avoid targeting consumers who are price-sensitive switchers. Such consumers aren’t particularly loyal to a specific brand.
On the other hand, loyal consumers are usually highly profitable and are often insulated from the marketing efforts of your competitors. Marketers can benefit greatly from building campaigns that build loyalty among target consumers.
The trick is to identify where potential consumers lie on the loyalty scale. Behavioral marketing can shed some light on this by providing information on consideration and purchase behavior that can help you segment prospects or existing consumers into buckets based on how loyal they are to your brand or your competitor’s brand.
Analyzing the buying cycle
As marketers, we cannot effectively optimize our online marketing campaigns until we fully understand our consumers’ buying cycles. The buying cycle involves a number of facets including length, frequency and brand consideration.
How Long Is The Buying Cycle?
How much time does it take for a consumer to move from the recognition to the purchase phase of the buying cycle? The buying cycle can vary greatly depending both on the consumer and the purchase. For example, the buying cycle for the purchase of an automobile is significantly longer than that for a book or a CD. What is equally important to understand are the various stages within the buying cycle. For instance, someone interested in buying a car might view various auto review sites in addition to various manufacturer sites. By understanding this online behavior, marketers can become more knowledgeable about a prospects' buying cycle and customize their campaigns to reach the consumer at the moment they are ready to buy, resulting in better ROI.
How Frequent Is The Purchase?
A consumer might purchase a new CD every couple of days or weeks, while they might need a new car only once every few years. Understanding the frequency of purchase, not just on one site, but across the entire Web, helps marketers gauge how often a consumer might be receptive to an advertising message.
What Brands Are Considered?
When a potential consumer recognizes they have a want or need for something in your product category, where do you end up on their consideration list? As a marketer, it is important that you understand this so that you can customize your campaign based on whether or not your product is getting on the radar screen at all. You might choose to direct your advertising and communications efforts toward building awareness in addition to stimulating trial, or conversely, you might want to gear your communications toward highlighting product features and differentiation; your marketing campaign will rely heavily on where you fall in a consumer’s consideration set. Knowing where you stand is key to understanding where, when and how to communicate with prospects.
To demonstrate, let’s look at the online toy category. It is no secret that by and large, the buying cycle in the toy market is driven by seasonality, with a larger number of purchasers tending to come to market around the holiday shopping season. The consideration set for Web traffic to toy retailers is consolidated among just a few top players. Table 1 shows all consumers in the GAIN Network who viewed the top online toy retailers during the 2003 Holiday Shopping season. Over 80 percent viewed Online Toy Retailer 1. In terms of penetration, the next closest online toy retailer captured only 19.6 percent of online toy store viewers. Purchasers of top online toy retailer sites also followed the same pattern with 66.5 percent of total purchasers making a purchase online at Online Toy Retailer 1.
Table 1
*Data from GAIN network: Analysis period from 11/28/03 – 1/04/04
1Penetration of viewers is defined as: viewers of the designated brand divided by total viewers to the category. Figures may add up to more than 100% due to viewers viewing several sites in the category.
2Share of purchasers is defined as: purchasers at the designated brand divided by total purchasers to the category. Figures may add up to more than 100% due to purchasers purchasing from several sites in the category.
As you can see from Table 1, browsers don’t necessarily translate into buyers, and competitors are able to take market share from the top brand in the category rather easily.
Although the top brand in the category has an 80.4 percent penetration of browsing traffic, there’s a difference of nearly 14 percentage points in its share of actual buyers. Even though browsers are giving the top brand a look, Online Toy Retailer 1’s market share is still vulnerable to the marketing efforts of its smaller competitors.
Table 2
*Data from GAIN network: Analysis period from 11/28/03 – 1/04/04
In Table 2, you see that Online Toy Retailer 1, the category leader, has a heavy concentration (70.6 percent) of GAIN consumers who return to the site more than five times before purchasing. This browsing behavior indicates that consumers are likely to look at competing brands before purchasing. An effective ad strategy would leverage this information and differentiate Online Toy Retailer 1’s advantages over its competitors.
Where should consumers come from?
Once we have analyzed the buying cycle, one of the first questions to ask is “How many potential consumers are out there?” Knowing the size of the audience is Step 1. Step 2 is figuring out whether acquisition efforts should be aimed at new entrants into the category or current consumers of competitors, or both.
If a market is saturated, growth will likely stem from luring customers away from the competition. On the other hand, if the category is relatively new, cultivation of consumers starts with promoting the category itself and then gathering new consumers. Odds are that a typical marketer will build a consumer base from both sources, so it’s important to have an understanding of what types of consumers will yield the greatest profitability.
Beyond the spreadsheet: understanding that all conversions are not equal
The evolution of success measurement has taken online marketers from impressions, to clicks, to conversions. Behavioral Marketing has taken it one step further to make it clear that some conversions are much more valuable than others. This is the core of consumer-centric success measurement. Moving from a metrics-centric to a consumer-centric model is critical to driving online marketing success and profitability. Behavioral marketing can help you gauge profitable consumers by identifying them and providing insights into their consideration and purchase behavior and then building an overall ROI model for consumer acquisition that delivers results.
Rudy Grahn is currently a Manager of Database Analytics at Claria. Prior to joining Claria, Rudy was Senior Analyst of Online Advertising at Jupiter Research covering media planning/buying and campaign optimization.
Prior to Jupiter Media Metrix, Grahn was the supervisor of Analysis and Optimization at the interactive agency SFInteractive-San Francisco. While at SFI, Grahn led campaign analysis for such clients as Microsoft bCentral, Adaptec, Verisign, Morgan Stanley Dean Witter Online, Red Envelope and Women.com. Grahn was also the founding creative and senior copywriter for interactive agency i-traffic New York/San Francisco, where he worked on interactive campaigns for CDNow, Disney, Eddie Bauer, First Auction, BellSouth, Doubleday Interactive and CNN/SI among others.